South America Calling

Looking at the pure numbers, this was the year for Argentine farmers to plant corn.

The gross margin on planting first-crop corn at the heart of the grain belt was 36% higher than for soybeans for the 2012-13 season, according to Agripac, a local consultancy.

But growers chose to disregard these cold statistics and cut corn area by 5% to 10%, while increasing soy area by around 5%.

The apparent anomaly, as most of you are well aware, is due to government intervention. Buenos Aires controls corn exports through quotas, which means that farmers can never be sure of getting full market price. In contrast, soybean shipments flow freely. Essentially, the government promoted soybeans over corn for the last seven years and, as a result, soybean area is five times that of corn.

Still, gross margin on first-crop corn planting rose 12% in 2012-13 to $251.42 per acre in northern Buenos Aires and southern Santa Fe, assuming average yields of 136 bushels per acre, says Agripac.

The corresponding margin on first-crop soy fell 13% to an estimated $251.42 per acre, assuming average yields of 51 bushels per acre.

While these figures did little to persuade farmers to deploy corn as a first crop, it did help persuade them to plant second- and third-crop corn after wet weather impeded soybean planting in November and December.

Of course, the margins don't look so grand when you factor in land rental, which typically stands at around $160 per acre for top quality soil in this region.

Meanwhile, the margins are quoted in dollars, but farmers receive pesos for their crops. These values are calculated at the official exchange rate of $1 = AR$5.02, as of Wednesday, when the black market value has slipped to 7$1 = AR$7.80.

Argentine costs are the envy of Brazilian farmers. While the necessary fertilizers and chemicals to plant an acre of soybeans costs $189 in Sorriso, Mato Grosso, in northern Buenos Aires, the bill is just $53.

On the other hand, Brazilians don't have to swallow a 35% soybean export tariff.

As a couple of sources noted during my recent tour around Argentina, the real margins have a way of balancing out.

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